Accelerators gamble on innovative ideas, people

Start-up incubation is like a game of poker with very high stakes

For many start-ups, an accelerator is crucial. With little funding and big ideas, many budding companies need more than just an injection of capital to get off the ground. Start-up accelerators offer not just money but also connections, education, mentorship and a distinct path toward a product pitch.

But running a start-up accelerator is no easy task. With often huge amounts of cash at stake, accelerators have to choose companies based on little more than basic ideas and the people involved.

The JoongAng Ilbo sat down with the heads of three start-up accelerators - Lee Taek-kyung of MashUp Angels, Song Kyung-bok of Funky Bro and Lee Ji-sun of OZ Incubation Center. Unlike Funky Bro and MashUp Angels, OZ Incubation is a public start-up accelerator.

Accelerators could invest anywhere between 50 million won ($44,000) and 300 million won into start-ups with little more than test products to base the decision on. Lee Taek-kyung compared the process to a poker game.

“Investing in a start-up in the early stage is like a poker game with only one card flipped,” said Lee Taek-kyung. “Making a decision by only looking at one card is risky since the information is limited. We have no choice but to look at the team and the members. We carefully look at whether the founder has an unyielding determination, and whether the team members share the same vision with the founder.”

How the team is composed is also a crucial factor.

“As entertainment agencies assign certain roles to each member of a teenage band - singing, dancing - those who are directly in charge of important fields are also needed within start-ups,” said Lee Ji-sun.

“There was once a person who came up with an idea to prevent dementia by analyzing elderly people’s actions, said Lee Ji-sun. “However, no medical professional existed inside the team. I asked for an alternative, but only heard that the person is well acquainted with a lot of professors, so I sent the person back. The reason why I did so was because no one could help them.”

Funky Bro uses social media like Facebook for marketing. After it creates an advertisement on the social media site and promotes the ad for a certain period of time, it decides whether to invest or not by checking the results.

“There are certain products and services that are more popular with the public than others under the same marketing period. We highly rate the potential of those start-ups,” said Song.

The advantage that accelerators have over general venture capital firms is that they coach start-ups.

“A company cannot only be run by the strong determination of the founder,” said Lee Ji-sun. “In order for the founder to find balance, [people have] to inform the founder that there is a cliff next to them.

“So to avoid founders from starting from scratch, we continuously teach [them] finance, accounting and the basics of law.”

The secret to success, according to the three experts, is bucking the trend.

Wisely is a razor blade delivery service incubated by OZ Incubation Center. Wisely discovered that most razor blades cost more than 10,000 won in Korea, so it lowered the price by importing components from Germany and assembling the products here.

The company sells a razor with a razor blade for 8,900 won and then sets of four razor blades for 9,600 won. Wisely has consistently grown, increasing its employees from 3 to 12 in the last year.

The Rooy is another start-up that bucks the trend. Under the guidance of Funky Bro, The Rooy manufactures small batches of shoes after receiving designs from designers all over the world as a form of crowdsourcing. It allowed designers to manufacture shoes under their own brands.